<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1 to
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 14, 1996
Date of Earliest Event Reported: June 12, 1996
THE ROUSE COMPANY
(Exact name of registrant as specified in its charter)
MARYLAND 0-1743 52-0735512
(State or other jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification Number)
10275 LITTLE PATUXENT PARKWAY
COLUMBIA, MARYLAND 21044-3456
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (410) 992-6000
Page 1 of 13
<PAGE>
The registrant hereby amends the following items, financial statements,
exhibits or other portions of its current report on Form 8-K dated June 27, 1996
as set forth in the pages attached hereto:
<TABLE>
<CAPTION>
Item 7. Financial Statements and Exhibits Page
----
<S> <C>
(a) Financial Statements - The Hughes Corporation and Subsidiaries
Consolidated Balance Sheets - March 31, 1996 and
December 31, 1995 (Unaudited) 4
Consolidated Statement of Operations -
Three Months Ended March 31, 1996 (Unaudited) 5
Consolidated Statement of Cash Flows -
Three Months Ended March 31, 1996 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements 7
(b) Pro Forma Financial Information - The Rouse Company
and Subsidiaries
Pro Forma Condensed Combined Balance Sheet -
March 31, 1996 (Unaudited) 9
Pro Forma Condensed Combined Statement of Operations -
Three Months Ended March 31, 1996 (Unaudited) 10
Notes to Pro Forma Condensed Combined Balance Sheet and
Statement of Operations (Unaudited) 11-13
</TABLE>
Pro Forma financial information of the Company and its subsidiaries as of
December 31, 1995 and for the year then ended is included in the Company's
Registration Statement on Form S-4 (File No. 333-1693), as amended (the
"Registration Statement") which became effective on May 14, 1996, and the Proxy
Statement/Prospectus, dated May 14, 1996, which is included in the Registration
Statement. Such pro forma financial information is incorporated herein by
reference.
Page 2 of 13
<PAGE>
(c) Exhibits.
The following documents were included in the Company's previous Form 8-K
report dated June 27, 1996:
1. Agreement and Plan of Merger, dated as of February 22, 1996, as amended
May 1, 1996 and May 13, 1996, by and among The Hughes Corporation, The
Rouse Company and TRC Acquisition Company I (incorporated by reference to
Exhibit 2.1 to the Registration Statement on Form S-4 (File No. 333-1693)
of The Rouse Company).
2. Agreement and Plan of Merger, dated as of February 22, 1996, as amended
May 1, 1996 and May 13, 1996, by and among Howard Hughes Properties,
Limited Partnership, The Rouse Company and TRC Acquisition Company II
(incorporated by reference to Exhibit 2.2 to the Registration Statement
on Form S-4 (File No. 333-1693) of The Rouse Company).
3. Contingent Stock Agreement, effective as of January 1, 1996, by The Rouse
Company in favor of and for the benefit of the Holders and
Representatives named therein (incorporated by reference to Exhibit 2.3
to the Registration Statement on Form S-4 (File No. 333-1693) of The
Rouse Company).
4. Articles of Incorporation of The Rouse Company, as amended and restated,
effective May 27, 1988 (the "Charter") (incorporated by reference to the
Exhibits to the Form 10-K Annual Report for the fiscal year ended
December 31, 1988 of The Rouse Company (Commission File No. 0-1743)).
5. Articles of Amendment to the Charter of The Rouse Company, effective
January 10, 1991 (incorporated by reference to the Exhibits to the Form
10-K Annual Report for the fiscal year ended December 31, 1990 of The
Rouse Company (Commission File No. 0-1743)) .
6. Articles Supplementary to the Charter of The Rouse Company, dated
February 17, 1993 (incorporated by reference to the Exhibits to the Form
10-K Annual Report for the fiscal year ended December 31, 1992 of The
Rouse Company (Commission File No. 0-1743)).
7. Articles Supplementary to the Charter of The Rouse Company, dated
September 26, 1994 (incorporated by reference to the Exhibits to the
Registration Statement on Form S-3 (File No. 33-57707) of The Rouse
Company).
8. Articles Supplementary to the Charter of The Rouse Company, dated
December 27, 1994 (incorporated by reference to the Exhibits to the
Registration Statement on Form S-3 (File No. 33-57707) of The Rouse
Company).
9. Form of Articles Supplementary to the Charter of The Rouse Company
relating to the Increasing Rate Cumulative Preferred Stock, par value
$0.01 per share, of The Rouse Company (incorporated by reference to
Exhibit 4.6 to the Registration Statement on Form S-4 (File No. 333-1693)
of The Rouse Company).
10. Form of Articles Supplementary to the Charter of The Rouse Company
relating to the 10.25% Junior Preferred Stock, 1996 Series, par value
$0.01 per share, of The Rouse Company (incorporated by reference to
Exhibit 4.7 to the Registration Statement on Form S-4 (File No. 333-1693)
of The Rouse Company).
11. Bylaws of The Rouse Company, as amended September 22, 1994 (incorporated
by reference to the Exhibits to the Form 10-Q Quarterly Report for the
quarter ended September 30, 1994 of The Rouse Company (Commission File
No. 0-1743)).
Page 3 of 13
<PAGE>
ITEM 7(A). FINANCIAL STATEMENTS - THE HUGHES CORPORATION AND SUBSIDIARIES
THE HUGHES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited, In Thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Properties:
Rental properties $394,909 $373,550
Development properties 128,955 139,251
Investment properties 16,758 16,625
Reserve for depreciation (91,251) (86,528)
-------- --------
Total properties 449,371 442,898
-------- --------
Investments in
unconsolidated partnerships 579 588
-------- --------
Other assets:
Cash and cash equivalents 118,185 94,099
Marketable securities 10,414 49,135
Receivables - net 39,126 43,538
Deferred charges and other 47,218 47,220
-------- --------
Total other assets 214,943 233,992
-------- --------
TOTAL $664,893 $677,478
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Notes and mortgages payable $330,186 $332,276
Accounts payable and
accrued liabilities 28,011 34,027
Other liabilities and
deferred credits 25,206 34,447
Minority interests in
consolidated partnerships:
Beneficiaries of the
Estate of Howard R. Hughes, Jr. 147,549 144,796
Non-affiliated partners 4,960 4,655
-------- --------
Total minority interests
in consolidated partnerships 152,509 149,451
-------- --------
Shareholders' equity:
Common stock - $1 par value;
137,362 shares authorized and
66,466 shares issued 67 67
Additional paid-in capital 3,707 3,707
Retained earnings 124,854 123,150
Net unrealized gain
on investment securities
(net of income tax of $190) 353 353
-------- --------
Total shareholders' equity 128,981 127,277
-------- --------
TOTAL $664,893 $677,478
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
Page 4 of 13
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT EARNINGS PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
Operating revenues:
Rental properties $ 17,448 $ 15,461
Development properties 5,635 47,355
Investment properties 4,357 11,290
-------- --------
Total 27,440 74,106
-------- --------
Cost of revenues:
Rental properties 5,744 4,976
Development properties 4,539 41,108
Investment properties 538 4,665
-------- --------
Total 10,821 50,749
-------- --------
Gross profit from operations 16,619 23,357
-------- --------
Other income (expense):
General and administrative (2,170) (2,669)
Interest income 2,741 2,878
Interest expense, net of
capitalized interest (5,538) (5,286)
Depreciation and amortization (5,353) (4,445)
Other, net (514) 244
-------- --------
Total (10,834) (9,278)
-------- --------
Income before income taxes and
minority interests 5,785 14,079
-------- --------
Provision for income taxes (1,023) (2,383)
-------- --------
Minority interests in income of
consolidated partnerships:
Beneficiaries of the Estate
of Howard R. Hughes, Jr. (2,753) (7,146)
Nonaffiliated partners (305) (243)
-------- --------
Total (3,058) (7,389)
-------- --------
Net earnings $ 1,704 $ 4,307
======== ========
Earnings per share
of common stock $ 25.64 $ 64.80
======== ========
Weighted average shares of
common stock outstanding 66,466 66,466
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
Page 5 of 13
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Cash received from rental
properties $ 18,527 $ 15,796
Cash received from sales of develop-
ment and investment properties 11,141 48,189
Cash paid for operating
and administrative costs (13,089) (12,739)
Interest paid, net of amounts
capitalized (5,818) (5,309)
Interest received 3,689 2,818
Income taxes paid (1,268) (73)
Other, net 584 1,630
-------- --------
Net cash provided by
operating activities 13,766 50,312
-------- --------
Cash flows from investing activities:
Capitalized costs on properties
being developed (20,232) (23,100)
Additions to rental properties (194) (663)
Purchases of marketable securities - (37,959)
Proceeds from redemptions or sales
of marketable securities 38,721 14,981
Other, net (601) 10
-------- --------
Net cash provided by (used in)
investing activities 17,694 (46,731)
-------- --------
Cash flows from financing activities:
Proceeds from borrowings
and refinancings - 9,000
Principal payments on notes,
mortgages and assessments (2,374) (17,050)
Distributions to owners (5,000) (4,000)
Capital contribution from
minority partner - 2,325
Other, net - (121)
-------- --------
Net cash used in financing
activities (7,374) (9,846)
-------- --------
Net increase (decrease)
in cash and cash equivalents 24,086 (6,265)
Cash and cash equivalents at
beginning of period 94,099 55,418
-------- --------
Cash and cash equivalents at
end of period $118,185 $ 49,153
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
Page 6 of 13
<PAGE>
THE HUGHES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1996
(1) BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements included herein
reflect the consolidated accounts of The Hughes Corporation and all entities in
which it has a majority ownership interest or control. These consolidated
entities are collectively referred to as "THC." Ownership interests in
remaining entities are accounted for on the equity basis. All material
intercompany balances and transactions have been eliminated.
These unaudited statements have been prepared in conformity with the generally
accepted accounting principles used in preparing THC's annual audited
consolidated financial statements, but do not contain all of the information and
disclosures that would be required in a complete set of audited financial
statements. They should, therefore, be read in conjunction with THC's audited
consolidated financial statements and notes thereto for the year ended December
31, 1995.
THC's operating results are significantly impacted by the sales of land to
merchant builders and the periodic sales of surplus investment land parcels.
Sales of these types do not necessarily occur ratably throughout the year.
Accordingly, operating results for interim periods will not necessarily be
indicative of results that can be expected for the full year.
In the opinion of management, the accompanying condensed consolidated financial
statements present fairly, in all material respects, THC's financial position
at March 31, 1996 and December 31, 1995 and the results of its operations and
cash flows for the three-month periods ended March 31, 1996 and March 31, 1995.
(2) HOUSEHOLD CREDIT SERVICES BUILD-TO-SUIT TRANSACTION
Revenue of $21.9 million was recorded in the three-month period ended March 31,
1995 on the sale of a building, built by THC, to Household Credit Services in
Summerlin. Because THC contributed the land as an incentive for Household
Credit Services to become the first major employer in Summerlin, there was no
profit on the sale.
Page 7 of 13
<PAGE>
ITEM 7(B). PRO FORMA FINANCIAL INFORMATION - THE ROUSE COMPANY AND SUBSIDIARIES
The following unaudited pro forma condensed combined financial statements
are based upon the consolidated financial statements of The Rouse Company
(Company) and The Hughes Corporation (THC), adjusted to give effect to the
mergers of THC and its affiliated partnership, Howard Hughes Properties, Limited
Partnership (HHPLP), with wholly-owned subsidiaries of the Company. The pro
forma condensed combined balance sheet and statement of operations are provided
to illustrate the effect of the mergers on the Company and have been prepared
using the purchase method of accounting. These statements reflect how the
balance sheet of the Company might have appeared at March 31, 1996 if the
mergers had been consummated at that date and how the statement of operations of
the Company for the three months ended March 31, 1996 might have appeared if the
mergers had been consummated on January 1, 1996. These unaudited pro forma
condensed combined financial statements are not necessarily indicative of the
results of operations or financial position of the Company that would have
occurred had the mergers occurred at the beginning of the period presented or on
the date indicated, nor are they necessarily indicative of the future results or
financial position of the Company.
These unaudited pro forma condensed combined financial statements should be
read in conjunction with the audited consolidated financial statements of the
Company included in its Form 10K for the year ended December 31, 1995, the
unaudited condensed consolidated financial statements of the Company included in
its Form 10-Q for the three months ended March 31, 1996, the audited
consolidated financial statements of THC as of and for the year ended December
31, 1995 incorporated herein by reference and the unaudited condensed
consolidated financial statements of THC as of and for the three months ended
March 31, 1996 included elsewhere herein. The unaudited pro forma adjustments
are based upon this financial information and certain other assumptions included
in the notes to the unaudited pro forma condensed combined financial statements.
As indicated above, the mergers will be accounted for by the purchase method
of accounting. The Company's cost to acquire THC and HHPLP, including the fair
values of liabilities assumed, approximated the fair values of the assets
acquired. The purchase allocation adjustments made in connection with the
development of the unaudited pro forma condensed combined financial statements
are based on the information available at this time. Subsequent adjustments and
refinements to the allocation may be made based on additional information.
Page 8 of 13
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 1996
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
The Hughes The Hughes The Rouse
The Rouse Corporation Corporation Company and
Company and and Pro Forma and Subsidiaries
Subsidiaries Subsidiaries Adjustments Subsidiaries, (Pro Forma-
(Historical) (Historical) (Note 2) As Adjusted Combined)
------------ ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Property
Operating properties, net.................... $2,471,182 $306,135 $ 3,707 (1) $ 383,577 $2,854,759
(5,923)(4)
79,658 (5)
Properties in development.................... 66,234 126,501 (106,703)(1) 36,471 102,705
16,673 (5)
Properties held for sale..................... 16,743 -- -- -- 16,743
Land held for development and sale........... 129,132 16,735 112,394 (1) 111,941 241,073
(17,188)(5)
---------- -------- ---------- ---------- ----------
Total property............................... 2,683,291 449,371 82,618 531,989 3,215,280
Prepaid expenses, deferred charges
and other assets.............................. 148,985 47,727 (32,109)(2) 41,593 190,578
(365)(4)
26,340 (5)
Accounts and notes receivable.................. 29,805 39,126 (3,707)(1) 40,061 69,866
4,642 (5)
Investments in marketable securities........... 18,100 10,414 (10,414)(2) -- 18,100
Cash and cash equivalents...................... 34,779 118,185 (116,386)(2) 1,580 36,359
(219)(4)
---------- -------- ---------- ---------- ----------
Total........................................ $2,914,960 $664,823 $ (49,600) $615,223 $3,530,183
========== ======== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Debt........................................... $2,429,490 $330,186 $ 5,691 (1) $347,034 $2,776,524
(16,000)(3)
(4,200)(4)
(19,875)(5)
51,232 (5)
Other liabilities.............................. 227,858 205,656 (156,995)(3) 75,115 302,973
(2,307)(4)
10,000 (5)
18,761 (5)
Deferred income taxes.......................... 85,177 -- 16,674 (5) 16,674 101,851
Company-obligated mandatorily redeemable
preferred securities of a trust holding
solely Parent Company subordinated debt
securities.................................... 137,500 -- -- -- 137,500
Shareholders' equity........................... 34,935 128,981 (158,909)(2) 176,400 211,335
172,995 (3)
33,333 (5)
---------- -------- ---------- ---------- ----------
Total........................................ $2,914,960 $664,823 $ (49,600) $615,223 $3,530,183
========== ======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 9 of 13
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Three months ended March 31, 1996
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
The Hughes The Rouse
The Rouse Corporation Company and
Company and and Pro Forma Subsidiaries
Subsidiaries Subsidiaries Adjustments (Pro Forma
(Historical) (Historical) (Note 3) Combined)
------------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
Revenues...................................... $173,148 $30,561 $ (278)(1) $200,690
(2,741)(6)
Operating expenses, exclusive of
provision for bad debts,
depreciation and amortization................ 90,834 13,885 (76)(1) 106,769
486 (3)
(126)(4)
2,652 (8)
(886)(9)
Interest expense.............................. 52,251 5,538 (77)(1) 58,201
1,000 (2)
(511)(5)
Provision for bad debts....................... 621 - - 621
Depreciation and amortization................. 18,284 5,353 (75)(1)
(3,260)(10) 20,302
-------- -------- ------- --------
Earnings from continuing operations
before income taxes.......................... 11,158 5,785 (2,146) 14,797
Income taxes.................................. 4,415 1,023 1,201 (11) 6,639
-------- -------- ------- --------
6,743 4,762 (3,347) 8,158
Minority interests in income of
consolidated partnerships.................... - 3,058 (50)(1) 255
(2,753)(7)
-------- -------- ------- --------
Earnings from continuing operations........... $ 6,743 $ 1,704 $ (544) $ 7,903
======== ======== ======= ========
Earnings from continuing operations per
share of common stock after provision for
dividends on Preferred stock................. $.06 $.08
======== ========
Weighted average number of common
shares outstanding.............. 48,058 7,743 55,801
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
Page 10 of 13
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET AND
STATEMENT OF OPERATIONS
MARCH 31, 1996
(UNAUDITED)
(1) BASIS OF PRESENTATION
On June 12, 1996, the Company, through mergers involving two wholly owned
subsidiaries, acquired all of the issued and outstanding common stock of THC and
the ownership interests of stockholders of THC in Howard Hughes Properties,
Limited Partnership (HHPLP).
The aggregate consideration paid by the Company in the mergers consisted of
cash of $40,000,000 (borrowed on credit lines available to the Company), shares
of the Company's common stock valued at $176,400,000 and an obligation to make
capital contributions of $10,000,000, to certain partnerships as more fully
described below. Additional shares of the Company's common stock or increasing
rate Preferred stock may be issued subsequent to closing pursuant to terms of a
Contingent Stock Agreement based on values of certain specified assets
("Business Units") at various termination dates ("Valuation Dates") from 2000 to
2009 and cash flows generated from development and/or sale of those assets
during periods ("Earnout Periods") prior to the Valuation Dates. The Contingent
Stock Agreement is, in substance, an arrangement under which the Company and the
owners ("Holders") of THC and HHPLP prior to the mergers, through the receipt of
additional shares, benefit from EBDT from operations, if any, of the Business
Units during the Earnout Periods. The Company will issue additional shares to
the Holders based on the value, if any, of the assets of the Business Units at
their respective Valuation Dates. The Company will account for the Holders'
shares of EBDT from each Business Unit during the Earnout Periods as an
operating expense. The Company will account for share issuances to the Holders
determined as of the Valuation Dates (contingent consideration) as an additional
cost to acquire the related assets.
Under terms of the merger agreements, the Holders also received a distribution
prior to closing based on the cash and cash equivalents and marketable
securities (collectively, "cash") held by THC at December 31, 1995. The
distribution of cash to the Holders was not part of the consideration payable by
the Company in the mergers. Under the terms of the Contingent Stock Agreement,
the Company is also obligated to make payments of up to $10,000,000 to certain
partnerships, the interests of which are included in one of the Business Units
(the "Hughes Funding"). This obligation will be satisfied in the form of
capital contributions to these partnerships or, if such contributions are less
than $10,000,000 at a certain date, distributions of additional shares of the
Company's common stock or increasing rate preferred stock will be made to the
Holders. The Hughes Funding obligation is considered part of the consideration
paid by the Company in the mergers.
The accompanying unaudited pro forma condensed consolidated balance sheet and
statement of operations are provided to illustrate the effect of the mergers on
the Company and have been prepared using the purchase method of accounting.
These statements reflect how the balance sheet might have appeared at March 31,
1996 if the mergers had been consummated at that date and how the statement of
operations for the three months ended March 31, 1996 might have appeared if the
mergers had been consummated on January 1, 1996. These pro forma statements are
not necessarily indicative of either the results that would have occurred if the
acquisition had been consummated at the dates indicated or of future results of
the combined companies. In addition, the allocation of the purchase price is
based upon information available at this time. Subsequent adjustments and
refinements to the allocation may be made based on additional information.
The unaudited pro forma condensed consolidated balance sheet as of March 31,
1996 has been prepared from the consolidated balance sheets of the Company and
THC as of that date, adjusted for certain items as explained in note 2.
The unaudited pro forma condensed combined statement of operations for the
three months ended March 31, 1996 has been prepared from the consolidated
statements of operations of the Company and THC for such period, adjusted for
certain items as explained in note 3.
Page 11 of 13
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET AND
STATEMENT OF OPERATIONS (UNAUDITED)--(CONTINUED)
(2) ADJUSTMENTS TO PRO FORMA BALANCE SHEET
The accompanying unaudited pro forma condensed combined balance sheet as of
March 31, 1996 reflects certain adjustments which are explained below. These
adjustments are required to give effect to matters directly attributable to the
acquisition and to reclassify certain assets and liabilities of THC to conform
to the presentation used by the Company. Explanations of the adjustments are as
follows:
(1) To reclassify certain land and property assets and infrastructure
financing assessments payable to conform with the Company's method of
presentation.
(2) To adjust for the assets not being acquired by the Company, primarily
cash and cash equivalents ($116,386,000) and marketable securities
($10,414,000) which were distributed to the Holders prior to closing,
and various intangible and other assets recorded by THC.
(3) To adjust for liabilities not being assumed by the Company, primarily
minority interests in HHPLP ($147,404,000) and obligations under certain
debt and incentive consultancy/termination agreements and benefit plans
which were paid or defeased from the distribution made to the Holders
prior to closing.
(4) To adjust the assets and liabilities of an office building partnership
in which the Company has a 50% joint interest and control with another
entity. In accordance with the established accounting policies of the
Company, the accounts of this partnership are consolidated using the
proportionate share method of accounting. The Partnership owns 3930
Howard Hughes Parkway.
(5) To record liabilities incurred ($10 million pursuant to the "Hughes
Funding" obligation set forth in the Contingent Stock Agreement, $40
million payable pursuant to the merger agreements and $2 million payable
to an officer of THC to acquire his remaining rights under an incentive
agreement), adjust assets acquired and liabilities assumed to fair
value, and recognize deferred income taxes for differences between the
new financial reporting bases of the assets acquired and liabilities
assumed by the Company in the mergers and their tax bases.
(3) ADJUSTMENTS TO PRO FORMA STATEMENT OF OPERATIONS
The accompanying unaudited pro forma condensed combined statement of
operations for the three months ended March 31, 1996 reflects certain
adjustments which are explained below. These adjustments are required to give
effect to matters directly attributable to the mergers and to report results of
operations of THC in accordance with accounting policies of the Company where
such policies differ significantly from those which were applied by THC in
preparing its financial statements and to reclassify certain revenues and
expenses of THC to conform to the presentation used by the Company.
Explanations of the adjustments are as follows:
(1) Account for the operations of an office building in which the Company
has a 50% ownership interest (3930 Howard Hughes Parkway) using the
proportionate share method.
(2) Record interest expense on the $10,000,000 "Hughes Funding" obligation
and the credit line borrowing of $40,000,000 used to finance a portion
of the purchase price. The interest rate used for the Hughes Funding is
fixed at 7% pursuant to the Contingent Stock Agreement. The interest
rate used on the credit line borrowing is variable, and the rate used
(7%) is based on the rate in effect at closing.
Page 12 of 13
<PAGE>
THE ROUSE COMPANY AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET AND
STATEMENT OF OPERATIONS (UNAUDITED)--(CONTINUED)
(3) Adjust cost of land sales for differences in the cost basis of land.
(4) Adjust operating expenses to eliminate costs relating to employee
compensation plans of THC which were terminated and not replaced
subsequent to closing.
(5) Adjust interest expense for differences in the cost bases of assets
qualifying for interest capitalization.
(6) Eliminate income from short-term investments and investments in
marketable securities because all cash, cash equivalents and marketable
securities were distributed to Holders or used by THC prior to closing.
(7) Eliminate minority interest of the Holders in earnings.
(8) Record the share of EBDT of the Business Units attributable to the
Holders under the Contingent Stock Agreement during the Earnout Period.
(9) Eliminate costs incurred by THC in connection with the merger.
(10) Reduce depreciation and amortization expense related to properties in
operation for the net effects of different property bases and different
estimated useful lives in accordance with the established accounting
policies of the Company. Property bases increased as a result of fair
value adjustments and useful lives used in calculating depreciation
range from 31 to 49 years.
(11) Record tax effect of pro forma adjustments using an assumed effective
tax rate of 36.3% of earnings from continuing operations before income
taxes, excluding permanent differences. For this purpose, the share of
EBDT of the Business Units attributable to the Holders under the
Contingent Stock Agreement is treated as a permanent difference (i.e.,
the participation is not considered deductible and there is no temporary
difference as it affects neither the book nor the tax basis of the
acquired assets).
(4) EARNINGS PER SHARE
The weighted average number of shares of common stock outstanding used in the
calculation of earnings per share include the 7,742,953 shares of Company common
stock issued at closing of the mergers. Shares issuable under the Contingent
Stock Agreement were not considered in the calculation as their effect is not
material.
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